How to Certify Income for Military Personnel

When certifying low-income households at your tax credit site, you may encounter a situation in which you need to calculate income for military personnel. You may find the process difficult because you may have trouble obtaining the right documentation to prove to your state housing agency and the IRS that a household meets the tax credit program’s income-eligibility requirements. You may have trouble getting back the third-party Military Verification Form, or you may have trouble interpreting a copy of a service member’s recent Leave and Earnings Statement (LES). The LES may contain unfamiliar acronyms used by the military to identify different types of financial compensation.

To help guide you through the process of certifying income for military service members, we’ll go over when to include a military service member’s income and discuss how to interpret the various acronyms you may find in a service member’s LES.

When to Include Military Pay

If you learn that a household member is away in the military, find out whether the member has left behind a spouse or dependents in the unit. If he did, the member is considered “temporarily absent,” and you must count his income [Handbook 4350.3, par. 5-6 (B)(3)(a)].

If a household member who’s away in the military doesn’t leave behind a spouse or dependents and isn’t the head, spouse, or co-head of the household, the member can no longer be considered a household member. So you mustn’t count his income when certifying or recertifying the household [Handbook 4350.3, par. 5-6 (B)(3)]. However, the income of the head, spouse, or co-head will be counted even if that person is temporarily absent for active military duty [Handbook 4350.3, par. 5-6 (B)(3)(b)]. For example, suppose you have a household member who has been deployed by the military for the next four years and may be absent from her unit for four to five months at a time, returning for up to 10 days at a time. If the household chooses to keep this member on the lease and she’s not the head, co-head, or spouse, you mustn’t count her income.

What Military Pay to Include in Annual Income

When counting the income of a household member who’s in the military, you must include any income the member gets that’s related to his military service, such as monthly base pay, clothing allowance, and hazardous duty pay [Handbook 4350.3, app. 6-C, §(A)(b)(2)]. And you must include all the member’s income in the household’s total—even if the member keeps a portion of his income for his own expenses.

If a household member gets income from the military, you can verify income by sending the military a Military Pay Verification form. For an example of one you can adapt after checking with your state housing agency, see our Model Form: Military Pay Verification. If there’s a delay in getting the form back, you may be able to use the service member’s recent Leave and Earnings Statement to extrapolate annual income information.

Either way, you must have the right documentation and be able to understand it to properly calculate a household’s income. Misinterpreting military pay may lead to you mistakenly turn away a household that you think isn’t income-eligible or mistakenly lease a low-income unit to a household that’s over-income. If your state housing agency discovers your mistake, the owner of your site will risk losing credits for the unit. And if you need to count the unit to meet your site’s minimum set-aside, all the owner’s credits may be in jeopardy.

The LES for any military personnel can be obtained online through the Defense Finance and Accounting Services’s MyPay Web site (https://mypay.dfas.mil/mypay.aspx). Once logging in, the service member can print her most recent LES. The LES will identify rank (grade), years in service, whether or not there are dependents, direct deposit accounts, Thrift Savings Plan (TSP) deductions, and pay. Pay for full-time service members is semi-monthly based on the amounts listed in the Entitlements Box, half each pay. The following are line items you may find on the service member’s LES.

Base Pay. Base pay is determined by rank and length of service. It’s set in law by Congress in a pay table. You can find the most recent information in a military pay table at www.dfas.mil/militarymembers/payentitlements/militarypaytables.html.

Basic Allowance for Housing (BAH). BAH is a military entitlement given to many military members and is generally countable income for LIHTC. It’s given to members so that they can provide housing for themselves and their dependents (usually spouse and children). And BAH is given when the member and her dependents don’t occupy government quarters. BAH is nontaxable money paid on a monthly basis to cover 100 percent of average rental costs in every location. There are three factors for determining the amount of BAH: pay grade/rank, location in the United States, and if the member has dependents or not. To determine BAH, you can use the BAH calculator at www.defensetravel.dod.mil/site/bahCalc.cfm.

An exception to the BAH being countable income was introduced with the Housing and Economic Recovery Act of 2008 (HERA). According to HERA, if the military employee is housed in a building located in a county with a military base that has had its population grow by 20 percent or more between Dec. 31, 2005, and June 1, 2008, or any county adjacent to such a county, BAH is excluded from their income. This exception needs to be considered only when your site is near a military base.

Eight qualifying military bases were identified in Notice 2008-79: U.S. Air Force Academy, Colo.; Fort Shafter, Hawaii; Fort Riley, Kan.; Annapolis Naval Station (including U.S. Naval Academy), Md.; Fort Jackson, S.C.; Fort Jackson and Fort Hood, Texas; Dam Neck Training Center Atlantic, Va.; and Naval Station Bremerton, Wash. The list isn’t meant to be exclusive, and any qualified military installation that satisfies the percentage requirements of IRC Section 142(d)(2)(B)(iii)(1) would be eligible to receive similar treatment regardless of its failure to be included in Notice 2008-79 or any subsequent updates.

Basic Allowing for Subsistence (BAS). BAS is a continuation of the military tradition of providing room and board (or rations) as part of a service member’s pay. Because BAS is intended to provide meals for the service member, the monthly rate is based on the price of food. So each year it’s readjusted based on the increase of the price of food as measured by the USDA food cost index. The 2013 BAS Rates are $352.27 a month for enlisted service members and $242.60 a month for officers. BAS is countable income.

Thrift Savings Plan (TSP). The federal Thrift Savings Plan allows participants to place a portion of their monthly pay into an account similar to a private-sector 401(k) investment plan. TSP investments should be verified as you would other 401(k) accounts.

Drill Pay. Drill Pay is part of the total compensation available to National Guard and Reserve soldiers performing drilling and other training duties. Members of the National Guard or Reserves perform 12 weekend drills and 14 days of annual training each year.

Monthly and annual pay can be found at www.dfas.mil/militarymembers/payentitlements/militarypaytables.html. Unlike active duty service members, most reserve personnel are paid once a month unless they’re working more than their scheduled training. And many members receive food and housing allowances during their two-week stint, which is countable income.

Hostile Fire Pay (HFP). A service member may be entitled to Hostile Fire Pay (HFP) when the appropriate commander certifies that the member has met the requirements for entitlement to HFP for a given month.This is incentive pay for duty under hostile fire to a military person assigned or deployed to a combat zone. This income is exempt. The amount of pay isn’t prorated and is currently $225 per month.

Imminent Danger Pay (IDP). A service member may be entitled to Imminent Danger Pay (IDP) when serving on official duty in an area designated by the Department of Defense as eligible for IDP. This entitlement is usually listed together as Hostile Fire Pay/Imminent Danger Pay. A service member can receive IDP or HFP but not both.It is paid at the rate of $7.50 per day with a maximum monthly pay of $225. IDP is countable income.

Hazardous Duty Incentive Pay (HDIP). Service members who perform hazardous duties such as flying duty, parachute jumping, demolition of explosives, or toxic fuels handling may be entitled to HDIP. This income is countable.